Peake and Liddle (Child support)

[2018] AATA 1482

Peake and Liddle (Child support) [2018] AATA 1482 (1 March 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/BC012067

APPLICANT:  Mr Peake

OTHER PARTIES:  Child Support Registrar

Ms Liddle

TRIBUNAL:Member K Buxton

DECISION DATE:  1 March 2018

DECISION:

The tribunal varies the decision under review so that:

• for the period 1 March 2017 to 31 May 2019 Mr Peake’s adjusted taxable income is varied to $84,600;

• for the period 1 March 2017 to 13 November 2017 Ms Liddle adjusted taxable income is varied to $52,000; and

• for the period 14 November 2017 to 31 May 2019 Ms Liddle’s adjusted taxable income is varied to $72,000 per annum.

CATCHWORDS
Child Support – Departure determination – Income and financial resources of parents – Business income – Affiliation to the business - Period of departure - Decision under review varied

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988

REASONS FOR DECISION

BACKGROUND

1. Mr Peake and Ms Liddle are the parents of[Child 1], born January 2009, and [Child 2], born March 2011. The children were recorded by the Child Support Agency (CSA) as in the 60% care of Ms Liddle and the 40% care of Mr Peake until November 2017, from when they have been recorded as in the equal shared care of both parents. In this application Mr Peake seeks review of a decision of the CSA about the amount of child support he has been assessed to pay to Ms Liddle in relation to the children.

2. Administrative assessments of child support issued for the period 1 September 2016 to 30 June 2017 had required Mr Peake to pay a zero rate of child support based on Mr Peake’s 2016 adjusted taxable income of $12,101 per annum and Ms Liddle’s estimated income of $19,240.

3. On 12 December 2016 Ms Liddle applied for a departure from the administrative assessment of child support, asserting that Mr Peake’s income or financial resources from his business were not properly reflected in the administrative assessment. On 27 March 2017 a delegate of the Child Support Registrar determined that a ground existed to depart and, for the period 1 March 2017 to 30 November 2019, set Mr Peake’s adjusted taxable income at $76,893 per annum and Ms Liddle’s adjusted taxable income at $52,000 per annum. Mr Peake objected to that decision and the objections officer partly allowed the objection deciding that, for the period 1 March 2017 to 31 May 2019, Mr Peake’s adjusted taxable income was to be set at $84,600 per annum and Ms Liddle’s adjusted taxable income was to be set at $52,000 per annum.

4. Mr Peake sought review by the tribunal. The application for review was heard on 20 February 2018. In reaching its decision, the tribunal has considered the sworn evidence given by both Mr Peake and Ms Liddle, who attended the hearing by telephone, both giving evidence on affirmation. The Child Support Registrar did not participate in the hearing, but the CSA provided subsection 95(3) and 95(5) documents which were together marked Exhibit 1. Mr Peake provided further documents, which were marked Exhibit A. Ms Liddle provided further documents, which were marked Exhibit B. The tribunal deferred the decision to allow Mr Peake to produce further documents after the hearing, which were added to Exhibit A and also considered by the tribunal.

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (“the Act”). A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children, and the level of care provided by each parent.

2. Part 6A of the Act allows for a departure from an administrative assessment if, in the special circumstances of a case, the administrative assessment results in an unjust and inequitable level of child support because of the income, earning capacity, property or financial resources of a parent (subparagraphs 117(2)(c)(ia) and (ib) of the Act) and if a departure from the administrative assessment would be:

   ·     just and equitable as regards the children and each parent; and

   ·     otherwise proper.

3. In those circumstances, the tribunal may make one of the range of determinations prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

4. The words “in the special circumstances of the case” are not defined in the legislation. While it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. In Gyselman v Gyselman (1992) FLC 92-279, it was held that "special circumstances" were "facts peculiar to the particular case which set it apart from other cases". The legislative intent is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases.

Departure ground

1. Mr Peake is a qualified electrician and describes himself as a part-time employee of[Company 1]. Mr Peake is not currently a shareholder of [Company 1], but stated that he previously held 50% of the shares. He has transferred these shares to his brother in order to access capital needed for the property settlement between the parents which was finalised in late 2016. Mr Peake stated that his brother lives is Sydney and has not worked in, or generated any of the income of, [Company 1] for about the last four years. Mr Peake is the signatory to the business bank account operated in the name of the company and regularly undertakes [contract] work for that company. He lives in a property owned by the company although he stated that he pays some rent by way of a reduction in his wage. The property was the former family home of Mr Peake and Ms Liddle and was purchased using their joint funds together with a $200,000 loan from Ms Liddle’s mother, a contribution by Mr Peake’s brother and a contribution by the company. Upon property settlement the liability to Ms Liddle’s mother was assumed jointly by the parents. Mr Peake stated that he transferred his share in the company to his brother to pay his half of that loan. Ms Liddle stated that she is yet to repay her share. The property is comprised of a farm house where Mr Peake resides, buildings from which the [contracting] business is operated and a farm in which, Mr Peake stated, contractors are engaged to manage and undertake work.

10.  Mr Peake stated that his brother was the sole shareholder of the company and his brother, and not he, controlled the company. He stated that he was the manager of the business but accepted that he also worked in the business undertaking [contract]work. The tribunal is satisfied that Mr Peake is exercising control over the company and that the income generated by that company is as a result of his personal endeavours. Whatever arrangement he may have with his brother with respect to the shareholding of the company is inconsistent with the control exercised by Mr Peake over the company. The tribunal concludes from the available evidence that the company’s income and financial resources are available to Mr Peake as a source of income and as a mechanism for meeting of his personal expenses.

11.  Mr Peake stated that the company employs other contractors. He stated that the turnover of the company is not due only to his work because of these other employees. Mr Peake was asked by the objections officer to provide the company’s financial statements to show income and expenses during the objections process. He declined to do so. Mr Peake was then directed by the tribunal to provide full financial disclosure, including all documents he wished to rely on in order to demonstrate that the decision under review was incorrect and to do so prior to the hearing. Mr Peake did not produce the financial statements of the company to the tribunal prior to the hearing. The only financial information about the company available to the tribunal at the time of the hearing was uncovered by the CSA during the consideration of Ms Liddle’s application and during the objection process.

12.  Following the hearing, Mr Peake produced to the tribunal financial statements and various other documents. Mr Peake was made aware during the hearing that any further documents he produced to the tribunal following the hearing would be provided by the tribunal to Ms Liddle. Upon production of the documents to the tribunal Mr Peake requested the documents not be so provided. However, as the documents were relied upon by Mr Peake as relevant to his review application, it was proper and necessary for the tribunal to refuse Mr Peake’s request and provide a copy to Ms Liddle. Those documents have also formed part of the material considered by the tribunal. The documents show that both the electrical contracting business and the farm are operated through the company, a fact that Mr Peake did not disclose during the hearing.

13.  That information shows that:

·for the 2015/16 year:

·   the company reported gross income of $128,043 less cost of sales of $49,889, leading to gross profit of $78,233. Claimed expenses of $101,292, including a bad debt of about $44,000, lead to a net reported loss of $23,139.

·   Mr Peake reported income of $12,101 from a rental property (that he no longer holds as it has been transferred to Ms Liddle). He did not report any income from the company for that year, despite continuing to undertake its work.

·   The company employed a Mr A on a casual basis and paid him a total of $9,220 in wages, at the rate of $40 per hour, so for an average of about four hours of casual work each week.

·For the 2016/17 year:

·   the company reported gross income of $161,669 less cost of sales of $57,461, leading to gross profits of $104,178. Claimed expenses of $60,791, and profits from the family farm (operated from the same premises as Mr Peake’s home and the electrical business) of $3,380, lead to a reported profit of $46,768.

·   The company employed a Mr A on a casual basis and paid him a total of $9,600 in wages, at the rate of $40 per hour, so for an average of about five hours of casual work each week.

·   Mr Peake reported income of $14,987. He did not disclose his full income tax return but stated that his income was from employment by [Company 1]. He did not report any income from the company for that year, despite continuing to undertake its work.

14.  Mr Peake stated that the company employed two workers between whom the income of the business was generated. He also stated that he worked week on/week off as he has the care of the children half of the time. The tribunal notes that the children are of school age. Therefore Mr Peake may be working school hours during times when he has the children in his overnight care. Further, the tribunal notes that Mr A is the only employee of the company identified in the documents produced by Mr Peake after the hearing, and that Mr A has worked an average of no more than five hours per week for the last two financial years. During those financial years the company has generated sales of about $128,000 in the 2015/16 year and about $161,000 in the 2016/17 year. Mr Peake stated that his brother does not work in the business and the documents do not identify and payments of salary or dividends to directors or shareholders for the 2016/17 year. The tribunal concludes from this evidence that, not only does Mr Peake control the company, but also he is also responsible personally for the vast majority of its income generation. The cost of employing Mr A constituted about 6% of the turnover of the company for the 2016/17 year.

15.  Mr Peake denied any familiarity with the financial aspects of the [business], despite describing himself as the “manager” and stated that only his brother as shareholder, and the company accountant, would be able to explain those financial aspects. Despite this assertion, and prior to the hearing, Mr Peake prepared written submissions to the tribunal in which he stated, “CSA advises the company turnover is $128,000.00. Once materials and expenses are taken out of this figure, there is $50-60K left for wages shared by 2 employees.” Mr Peake knew, or ought to have known, that the figure referred to by the CSA was for the less profitable 2015/16 year, and that Mr A only worked an average of a handful of hours a week in that year and the 2016/17 year, in which turnover exceeded $160,000. The tribunal concludes that Mr Peake had declined to provide both full disclosure and frank evidence about the business, its profitability and his involvement in the generation of income. Mr Peake has not produced evidence about the cost of sales and how these are incurred. He asserted during the hearing that electrical work requires a high level of materials to be purchased, but the documents do not show which materials constitute the cost of sale or whether any personal expenses of Mr Peake are included within those figures. The 2016/17 financial statements show retained profit of over $46,000, together with various expenses that are either non-cash expenses to be added back (such as depreciation) or from which Mr Peake is most likely to have derived a personal benefit. These include the following (approximated):

·Accountancy fees: $10,000 (significantly higher than in the previous year, and as a percentage of the business’ income without explanation, and incurred in the year of the property settlement between Mr Peake and Ms Liddle);

·Depreciation of various items, totaling $9,400 (non-cash);

·Interest of $3,000 (for Mr Peake’s home);

·Motor vehicle expenses of $8,000 (the total claimed is $12,000. Mr Peake claimed this vehicle was used by the other employee, but given his sporadic and limited working hours, the tribunal considers it unlikely that any more than a third of these costs could be attributed to Mr A’ use for the business, or other business use);

·Rates of $7,000 (for Mr Peake’s home)

·Telephone $1,000 (allowing for 50% personal use)

Total: $38,400

16.  When added to the 2016/17 retained profits of just over $46,000, the total income and resources are about $84,600 per annum for that period, are there is no reason to conclude that the business is not continuing to operate at about that level. It may be that expenses will fluctuate, or that more of the accounting or vehicle expenses are business-related. The objections officer decided to set Mr Peake’s income at $84,600 per annum. The officer did not have access to the finances of the company. Doing the best with the available evidence, the objections officer determined that Mr Peake was unlikely to earn less than the business’ employees, and accepted that Mr Peake was working part-time around his responsibilities to care for the children, and found that he would likely earn at least $1,000 per week, or $52,000 per annum, from the business. The objections officer also found that he has living expense such as utilities met through the business of about $10,500 per annum, personal housing benefits of $16,900 per annum and vehicle benefits of $5,200 per annum. The evidence identified by the objections officer supports these findings as a reasonable interpretation of the very scant evidence Mr Peake had been prepared to provide.

17.  Drawing broadly from the evidence now available, the tribunal has reached the same conclusion as that in the decision under review, albeit for different reasons, that available income and financial resources available to Mr Peake to meet his needs, and those of the children are approximately $84,600 per annum.

18.  Until November 2017 Ms Liddle worked part-time [and] received rental income from a property transferred to her in the property settlement with Mr Peake in late 2016. She also received income support from Centrelink. Ms Liddle lives in a house owned by her mother. She stated during the hearing that she initially paid $200 per week in rent and at times this has dropped to $50 per week in rent, but did not produce evidence of those payments. Ms Liddle conceded during the hearing that she had not paid any rent to her mother for about six months prior to the hearing, stating that she had been unable to afford to do so.

19.  The objections officer determined on the available evidence that Ms Liddle had available income and financial resources of $52,000 per annum calculated, roughly, as about $10,000 in wages, $20,000 in rental income, $18,000 in income support, $7,000 in housing benefits, less some deductions of about $3,000 per annum for the rental property. Ms Liddle had previously stated to the CSA that this was higher than her actual income, but did not produce to the tribunal evidence to show that the calculation was incorrect, or submit at the hearing that another determination of her income would be the correct or preferable one.

20.  In November 2017 Ms Liddle secured a 12-month employment contract at a Bank for four days per week, earning about $40,000 per annum. She continues to receive rental income of about $17,000 (net of expenses) and is receiving rental benefits from her mother of about $200 per week, or about $10,000 per annum. She receives a small amount of income support, which varies with her reported income, but is on average about $100 per week, or about $5,000 per annum. These figures together total about $72,000 per annum. Therefore, until mid-November 2017 Ms Liddle had income and financial resources equivalent to about $52,000 per annum and from mid-November 2017 this has increased to about $72,000 per annum.

21.  Both parents receive family assistance payments to assist in meeting the needs of the children whilst in their care.

22.  The administrative assessments from 1 September 2016 to 30 June 2017 calculated child support payable by Mr Peake at the annual rate of $0 per annum using Mr Peake’s 2016 adjusted taxable income of $12,101 per annum and Ms Liddle’s estimated income of $19,240. If a figure of $84,600 in adjusted taxable income for Mr Peake and $52,000 per annum were instead used to calculate child support for that period, the annual rate of child support would be about $6,000 per annum payable by Mr Peake to Ms Liddle. The tribunal regards the circumstances of this case to be special. The significant difference which results from the use of Mr Peake’s and Ms Liddle’s actual incomes and financial resources in the calculation of the applicable rate of child support, when compared with the determination of child support payable calculated using the formula, leads to the conclusion that the formula assessment is unjust and inequitable. As a result, the tribunal concludes that a ground for departure exists.

Just and equitable

23.  The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the proper needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

24.  The tribunal has found that Mr Peake has had income and financial resources of about $84,600 per annum at least since the departure application was lodged. At that time, Ms Liddle had had income and financial resources of about $52,000 per annum. Using those incomes, and the recorded care for the children, for the period 12 December 2016 to 13 November 2017 would lead to an annual rate of child support of about $6,000 per annum payable by Mr Peake to Ms Liddle. From 14 November 2017 Ms Liddle has had income and financial resources of about $72,000 per annum. Applying this as adjusted taxable income from Ms Liddle from that date will significantly reduce the level of child support payable by Mr Peake to reflect the parties share care arrangement and similar levels of financial resources from that date. The tribunal proposes varying the incomes of the parents in order to reflect these findings and is satisfied that it is just and equitable to do so.

25.  The proposed departure leads to an overall increase in the assessed rate of child support payable by Mr Peake from December 2016 onwards when compared to the administrative assessment. There is no evidence that a departure in the proposed terms would cause hardship to Mr Peake, Ms Liddle or the children. The proposed departure produces an annual rate of child support which is fair having regard to the incomes of the parents.

Otherwise Proper

26.  The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. The rate of child support should reflect the obligation of both parents to take financial responsibility for the children and, when increased, may result in an adjustment to income-tested benefits payable to the parents. A departure is therefore proper.

CONCLUSIONS

27.  The administrative assessment did not take account of the incomes and financial resources of the parents. The tribunal is satisfied that a departure ground exists and that it is just and equitable and otherwise proper to make the proposed departure in the same terms as that in the decision under review in respect of Mr Peake’s adjusted taxable income. In respect of Ms Liddle’s adjusted taxable income the tribunal also proposes a departure in the same terms as in the decision under review, until 13 November 2017. From 14 November 2017 the tribunal proposes to vary the decision under review so that Ms Liddle’s adjusted taxable income is to be set at $72,000 per annum through to 31 May 2019 to provide a reasonable period of certainty for the parents.

28.  The objections officer decided that, for the period 1 March 2017 to 31 May 2019, Mr Peake’s adjusted taxable income was to be set at $84,600 per annum and Ms Liddle’s adjusted taxable income was to be set at $52,000 per annum. The tribunal makes a decision in the same terms with respect to Mr Peake’s income for that period, and Ms Liddle income from 1 March 2017 to 13 November 2017. The decision under review is varied so that, in relation to Ms Liddle’s adjusted taxable income, that is to be varied to $72,000 per annum from 14 November 2017 to 31 May 2019.

DECISION

The tribunal varies the decision under review so that:

• for the period 1 March 2017 to 31 May 2019 Mr Peake’s adjusted taxable income is varied to $84,600;

• for the period 1 March 2017 to 13 November 2017 Ms Liddle adjusted taxable income is varied to $52,000; and

• for the period 14 November 2017 to 31 May 2019 Ms Liddle’s adjusted taxable income is varied to $72,000 per annum.